Indian stock market crashes after trading in a tight range: Is it a good entry point for investors?

Stock market crash today: After trading in a narrow range for the past few sessions, Indian benchmark indices finally broke direction—albeit on the downside—with the Nifty 50 and Sensex falling over 1% in Tuesday’s session (May 20). Despite the decline in frontline indices, the underlying sentiment remains positive, supported by continued inflows from overseas investors.

Although foreign investors turned net sellers in the previous session, the figure was relatively low at ₹526 crore. The weakness in the Indian stock market suggests that investors appear to be booking profits amid a lack of fresh triggers after both the Nifty 50 and Sensex rose by 4% last week. 

The broader markets have also come under pressure after outperforming the frontline indices in recent sessions, with the Nifty Midcap 100 falling by 1.67% and the Nifty Smallcap 100 index tumbling by 0.95%.

Meanwhile, last week’s stellar rally also brought the Nifty 50 and Sensex close to their October peaks, which has raised valuation concerns, as earnings of large-cap companies remain muted so far in the March quarter.

In addition, weak global cues — such as Moody’s downgrading of the U.S. sovereign rating by one notch from Aaa to Aa1 — and renewed global trade concerns have weighed on investor sentiment. 

The concerns resurfaced after U.S. Treasury Secretary Scott Bessent stated in television interviews on Sunday that President Trump would impose tariffs at the previously threatened rate on trading partners that do not negotiate in “good faith.”

Besides, investors are closely monitoring the trade discussions between India and the U.S., which analysts believe could act as a trigger if both countries strike a deal. President Trump said last week that India had offered a trade proposal involving “no tariffs” on American goods.

Analysts recommend buy-on-dips strategy amid short-term consolidation

Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said, “In the near term, the market is likely to enter a consolidation phase. High valuations will cap the upside, with institutional selling emerging on rallies. This was evident from institutional activity yesterday, when both FIIs and DIIs turned sellers—though marginally. Market dips are likely to be bought into, as mutual funds are sitting on a large cash pile.”

“Globally, the credit rating downgrade of the U.S. has introduced an element of disquiet in financial markets. Even though this is not an immediate threat, it could have a sentimental impact by increasing uncertainty and the potential for fallout from currently unforeseen developments. Investors can adopt a cautious approach by selling on rallies and buying on dips in the near term,” he added.

Domestic brokerage firm Way2Wealth said, “Nifty appears bullish on most technical parameters. It is trading above key short-term and long-term moving averages, consistently making higher highs. After a strong rally, Nifty is likely undergoing some consolidation. Currently, immediate support is placed in the 24,950–24,900 zone, while strong support lies at 24,650.”

The brokerage added that resistance is located at the 25,100–25,300 levels. “Buying on dips should be the preferred trading strategy, as the overall trend remains bullish. One can consider buying Nifty near or above the 24,900–24,950 zone for a target of 25,100 and 25,200. Any close below 24,650 should warrant a review of the current outlook,” it stated.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.